Capital gains on the sale of real estate: what you need to know.

What is capital gains tax on the sale of real estate, how does it work, what taxes are involved in this transaction, how are taxes calculated, and how to declare it on your income tax return?

 

If you sold a property If you've recently sold or are thinking about selling, be aware that anyone who makes a profit from the sale of a property must declare this gain on their income tax return. In some cases, it's also necessary to pay tax on the profit obtained.

Taxpayers who fail to declare this profit and do not pay capital gains tax on the sale of real estate units will have problems with the Internal Revenue Service and will be subject to fines and interest on the amount of tax owed.

Therefore, anyone thinking about selling a property needs to know what capital gains are. real estate sales, How to calculate and pay the taxes due on this profit, and how to declare this gain on your income tax return.

 

Here's what you'll read here:

 

What is capital gain on the sale of real estate?

Capital gain on the sale of real estate is the positive balance between the cost of purchasing a property and its sale price. In other words, it occurs when a person sells a property for a higher price than they bought it for.

Those who engage in this type of transaction must declare the profit obtained in their annual income tax return. Furthermore, in many cases, the seller must pay tax on the profit obtained from the real estate transaction.

There are some situations in which the seller is exempt from paying taxes on capital gains from the sale of real estate, such as in the case of properties acquired up to the year 1969.

 

How does capital gains tax work when selling real estate?

Capital gains on the sale of real estate occur whenever you sell a property for a higher price than you paid to acquire it.

Although the detailed recording of the gain from the sale of the property, including the purchase price, sale price, and brokerage fees, and the effective payment of income tax on that gain are important measures, they do not eliminate the obligation to... Include the property in your Income Tax Return..

 

How is capital gains calculated?

To perform this calculation, assume you purchased a house for R$650,000 and subsequently sold it for R$850,000. In this case, the capital gain on the sale of the property is R$200,000.

The tax due will be calculated based on the profit obtained from the property, and not on the total value of the property.

 

How is income tax calculated on capital gains from the sale of real estate?

See below for the applicable income tax rates on capital gains from the sale of real estate.

It is important to note that the values presented below refer only to the tax, specifically the difference between the amount paid for the property and the profit from the sale price. The GCAP application automatically calculates the applicable tax bracket.

Capital gains values are calculated as follows:

• Up to the value of R$ 5 million: 15%;

• From R$ 5 million to R$ 10 million: 17.5%;

• From R$ 10 million to R$ 30 million: 20%;

• From R$ 30 million onwards: 22.5%.

Continuing with the previous example, in the case of a property purchased for R$650,000 and sold for R$850,000, totaling R$200,000 in capital gains from the sale, the amount to be collected in tax would be R$30,000. However, there are some cases where there is no need to pay the tax.

 

What is the timeframe for capital gains? 

The deadline for paying capital gains tax on the sale of real estate is the last business day of the month following the month in which the sale took place.

For example, suppose that the sale of the property If the event occurred in April of this year, you would have until the last business day of May to generate the Federal Tax Collection Document (DARF) through GCAP.

If you miss this deadline, you will have to pay a fine and interest on the amount of tax due.

 

Who is exempt from paying income tax on capital gains?

 

“There are some cases of exemption from capital gains tax, such as the sale of a single property for a value less than R$400 thousand (provided that they have not sold another property or any other security in the previous five years); sales of properties acquired before 1969 and exchanges of real estate units where no difference in cash is paid.”

 

First exception: If the property was acquired before the year 1969.

If you purchased a property in 1969 or earlier, regardless of when the sale takes place, you will be exempt.

There is also a progressive tax discount of 5% each year if you sell a property purchased between 1970 and 1988.

In other words, the tax discount is 100% on the sale of a property purchased in 1969, down to 5% on a property purchased in 1988.

 

Second exception: If the property is unique and sold for up to R$ 440 thousand.

In this case, the sale will be exempt from capital gains tax if you own only one property and the sale does not exceed that value, and even if you have not made a similar sale in the last five years.

 

3rd exception: If you purchase a new residential property with the same value

For the exemption to apply, the purchase price must be the same as the sale price, provided that the transaction is completed within 180 days. If the value of the property purchased is less than the value of the property sold, the difference will be taxed.

 

How do I declare capital gains from the sale of real estate?

The first step is to find an experienced accountant; at Logic Contabilidade you will find one. The second step is to declare the capital gain on the sale of real estate and download the [document/tool/etc.]. GCAP program and declare the sale value of the property. Simply click on the “generate DARF” option within the application, and generate the payment slip.

 

After paying the fee, you can import the information you entered in the app directly into the Income Tax program. Then click on "capital gains".

 

In this tab, a link to "GCAP import" will open for the corresponding year. The rest is handled by the application itself, which will include the "Income Subject to Exclusive/Definitive Taxation".

 

Finally, you will need to remove the sold property from the "assets and rights" section. Simply enter the CPF (Brazilian individual taxpayer registration number) or CNPJ (Brazilian company taxpayer registration number) of the person who bought the property and the sale price. Now everything is correct!